American Default

Sebastian Edwards

Published by Princeton University Press 2018

American Default

The Untold Story of FDR, the Supreme Court, and the Battle over Gold

Sebastian Edwards

https://doi.org/10.23943/9781400890385

Overview
Contents

About this book

The untold story of how FDR did the unthinkable to save the American economy

The American economy is strong in large part because nobody believes that America would ever default on its debt. Yet in 1933, Franklin D. Roosevelt did just that, when in a bid to pull the country out of depression, he depreciated the U.S. dollar in relation to gold, effectively annulling all debt contracts. American Default is the story of this forgotten chapter in America's history.

Sebastian Edwards provides a compelling account of the economic and legal drama that embroiled a nation already reeling from global financial collapse. It began on April 5, 1933, when FDR ordered Americans to sell all their gold holdings to the government. This was followed by the abandonment of the gold standard, the unilateral and retroactive rewriting of contracts, and the devaluation of the dollar. Anyone who held public and private debt suddenly saw its value reduced by nearly half, and debtors--including the U.S. government—suddenly owed their creditors far less. Revaluing the dollar imposed a hefty loss on investors and savers, many of them middle-class American families. The banks fought back, and a bitter battle for gold ensued. In early 1935, the case went to the Supreme Court. Edwards describes FDR's rancorous clashes with conservative Chief Justice Charles Evans Hughes, a confrontation that threatened to finish the New Deal for good—and that led to FDR's attempt to pack the court in 1937.

At a time when several major economies never approached the brink of default or devaluing or recalling currencies, American Default is a timely account of a little-known yet drastic experiment with these policies, the inevitable backlash, and the ultimate result.

Author information

Sebastian Edwards is the Henry Ford II Professor of International Economics at the University of California, Los Angeles. His books include Toxic Aid: Economic Collapse and Recovery in Tanzania and Left Behind: Latin America and the False Promise of Populism. He lives in Los Angeles.

Reviews

Brilliantly told.---Steve Hanke, Forbes

Excellent. . . . A fascinating narrative of FDR's decision to devalue the dollar in 1933-34.---Scott Sumner, EconLog

"I thought we knew about American abandonment of gold during the Great Depression. But American Default is an eye-opener. It is astonishing how chaotic were the circumstances and how woefully inadequate was understanding. Everyone interested in the history of gold, the Great Depression, the Greek or the Argentine crises, and in the crises to come should read this book."—Anne Krueger, Johns Hopkins University

"American Default provides an in-depth look at one of the most important, but often neglected, events in U.S. economic history, the abrogation of bond’s gold clauses during the New Deal. Not only does the book provide an excellent discussion of the economics of this event, but it is a really good read because it delves into the personalities and the politics behind this effective default. I highly recommend it."—Frederic S. Mishkin, Columbia University

[Sebastian Edwards] skillfully narrates a pivotal episode in American political and economic history he considers too little remembered. . . . Edwards writes equally knowledgeably about economics and politics: . . . At a time of economic uncertainty at home and abroad, this comprehensive study of an important event in U.S. fiscal history has significant implications for today.

"A really excellent book. Edwards provides a dramatic and readable account of monumental decisions that changed the course of history. American Default is sure to be a hit."—Michael D. Bordo, Rutgers University

[American Default] is the history of that mighty legal, moral, political and monetary controversy, the effects of which are with us still. . . . [Sebastian Edwards] knowledgably compares the 20th-century American default to Argentina’s 2002 abrogation of its dollar denominated debt.---James Grant, Wall Street Journal

"American Default is a fascinating and well-written book about the momentous decision to leave the gold standard in 1933. Sebastian Edwards skillfully weaves together the political, economic, and legal aspects of this important episode, with lessons for today. Highly recommended!"—Douglas A. Irwin, Dartmouth College, author of Clashing over Commerce: A History of US Trade Policy

Topics

Frontmatter Publicly Available Download PDF	i
Contents Publicly Available Download PDF	vii
Introduction Requires Authentication Unlicensed Licensed Download PDF	ix
Timeline Requires Authentication Unlicensed Licensed Download PDF	xxi
Dramatis personae Requires Authentication Unlicensed Licensed Download PDF	xxix
Chapter 1. Gold and the Professors Requires Authentication Unlicensed Licensed Download PDF	1
Chapter 2. A Tragic Disaster Requires Authentication Unlicensed Licensed Download PDF	13
Chapter 3. The Quest for Money Requires Authentication Unlicensed Licensed Download PDF	21
Chapter 4. A National Calamity Requires Authentication Unlicensed Licensed Download PDF	30
Chapter 5. Moderate Inflation Is Necessary and Desirable Requires Authentication Unlicensed Licensed Download PDF	45
Chapter 6. A Transfer of Wealth to the Debtor Class Requires Authentication Unlicensed Licensed Download PDF	57
Chapter 7. The Gold Clause Is Gone Requires Authentication Unlicensed Licensed Download PDF	65
Chapter 8. A London Interlude Requires Authentication Unlicensed Licensed Download PDF	79
Chapter 9. Order in Place of Chaos Requires Authentication Unlicensed Licensed Download PDF	95
Chapter 10. The Gold-Buying Program Requires Authentication Unlicensed Licensed Download PDF	103
Chapter 11. The Path to the Supreme Court Requires Authentication Unlicensed Licensed Download PDF	118
Chapter 12. Nine Old Men and Gold Requires Authentication Unlicensed Licensed Download PDF	132
Chapter 13. Embarrassment and Confusion Requires Authentication Unlicensed Licensed Download PDF	148
Chapter 14. The Waiting Game Requires Authentication Unlicensed Licensed Download PDF	157
Chapter 15. The Decisions, at Last Requires Authentication Unlicensed Licensed Download PDF	170
Chapter 16. Consequences Requires Authentication Unlicensed Licensed Download PDF	186
Chapter 17. Could it Happen Again? Requires Authentication Unlicensed Licensed Download PDF	201
Appendix. George F. Warren versus Irving Fisher’s Plans for the Dollar Requires Authentication Unlicensed Licensed Download PDF	208
Notes Requires Authentication Unlicensed Licensed Download PDF	215
Bibliography Requires Authentication Unlicensed Licensed Download PDF	235
Index Requires Authentication Unlicensed Licensed Download PDF	243